What’s the significance of the IBM acquisition of Red Hat?

What’s the significance of the IBM acquisition of Red Hat?

First, both IBM and Red Hat are clients of our company. Now that that is out of the way, what do we think about the acquisition of Red Hat? We predict that the acquisition will have a major impact on the cloud market and a positive impact on IBM as a player in this highly combative market.

Red Hat has had the ability to carve a path that many companies have tried to replicate – build a multi-billion dollar enterprise software business completely focused on offering open source technology. The company has built a powerful persona and corporate culture that embraces their open source heritage.

IBM is not a newcomer to the cloud market. IBM has been working on its cloud strategy since at least 2009. These early cloud offerings were largely services and consulting offerings. IBM’s first major commercial cloud announcement was an Infrastructure as a Service (IaaS) offering called Smart Cloud, launched in 2012. There were three observations I came away with after the Smart Cloud announcement (there was a major analyst event in Chicago back 2012 for the announcement).

At that time IBM actually created 4-5 different cloud platforms.

These various clouds were not unified with common APIs or services and therefore did not work especially well.

This was much more of a services play than a software play. The software that had been developed needed refinement before it was ready for commercial deployment.

Smart Cloud was a painful wakeup call. From my viewpoint, this was the beginning of a major transformation in IBM’s cloud strategy. As with every major disruption in the technology market, the transition was hard and long.

Through the years IBM redesigned their cloud strategy from both a technology and go to market perspective. The company’s most notable move was the $2 billion dollar acquisition of the IaaS vendor SoftLayer in 2013.

Fast forward to the past year. IBM has made significant and meaningful strides to transform its cloud platform to be more competitive. Over the past year I have watched as IBM created its third generation cloud, based completely on the industry standard container environment, Kubernetes. In addition, these cloud services are managed in a software-defined layer so that these services can sit on top of any public or private cloud environment. In addition, IBM provided a large set of security offerings that were designed to work at both the infrastructure and the applications level of its public and private clouds.

One of IBM’s biggest problems in the market is that most customers and partners didn’t understand the progress that IBM had made in its in cloud architecture. One important transformation is that IBM moved away from having a separate software infrastructure for its public and private clouds. Now the two deployment models: on premises and on the public cloud consistent software architectures that enable portability and integration. The only differences are that the private cloud can take advantage of existing infrastructure decisions. IBM is moving fast to containerize as many existing services as they can to simplify hybrid and multi-cloud deployments. It is a complicated process.

Assumptions and conventional wisdom die hard.

Most recently, IBM announced its multi-cloud management environment designed to provide customers the ability to manage both public and private services. Most companies use a variety of cloud services – multiple public clouds along with private clouds and software as a service. To help clients manage these complex multi-cloud environments IBM acquired a company focused on cloud brokerage software and cloud management platform called Gravitant in 2015. It also recently introduced IBM Multicloud Manager, a new open technology designed to make it easier to manage, move and integrate apps across different cloud computing infrastructures.

Thus far, IBM is having good success when it is able to discuss its strategy and offerings with corporate leadership around adopting the company’s cloud platform. On the other hand, Red Hat through its focus on Linux and open source has established a stronger developer community.

I think that the acquisition of Red Hat makes sense. Here are five reasons that I state this.

Red Hat is the undisputed leader in open source and open source Linux. The company has managed to thread the needle of monetizing Linux while still being regarded as an open source leader.

Red Hat has very deep and mature software to support the DevOps process and the management of workloads in the cloud. These offerings can be used across public and private cloud platforms. Red Hat has partnerships with almost all of the public cloud players including IBM, Microsoft, Google, and Amazon.

Red Hat continued to evolve its software offerings to accelerate the developer and market adoption of its Linux platform IBM can provide access to the enterprise market for this deep technology set of offerings

Red Hat has a sophisticated community model that will be useful to IBM. The community provides a deep relationship with developers and startups that can benefit IBM.

Red Hat has a growing set of solutions based on its platform and deep roots in the telecommunications market.

In addition, it is important to note that IBM has been an active contributor to open source projects for more than 20 years, starting with Java and Eclipse. For example, IBM contributed the initial code to start Hyperledger, a Linux Foundation project focused on Blockchain. In addition, IBM open sourced its POWER chip technology and was an early supporter (along with Red Hat) of OpenStack.

The bottom line is that the acquisition of Red Hat is a bold but necessary move for IBM. The acquisition has the potential to catapult IBM into a leadership position in the hybrid cloud and multi-cloud market and prepare it to potentially be a leader in cloud native development and deployment. The key will be not to kill the persona and the value that Red Hat has established in the market and have made it a great company. Therefore, Red Hat needs to remain a subsidiary of IBM maintaining its brand and positioning. At the same time, there needs to be an active exchange of technical knowledge between the two companies. Cultural issues will have to be addressed in a way that leverages the both values of both companies.